When rental fleet sales are projected to dip to 1 million units this year (down from 2 million in 2006), when the wholesale market suffers 12 straight months of year-over-year declines and when the Big Three now stands for Toyota, Honda and Nissan, you know the auto rental industry is in an era of unprecedented change.

While news of declines in fleet, workforces and stock prices at the major RACs play out in the national media and SEC filings, Auto Rental News has gone local. We surveyed small franchisees and independent operators around the country for an analysis of how those serving the local market are getting along in the current economy. Their pulse is still beating; in fact, many are thriving.

While rentals are down 10-15 percent across the board, the pullback on leasing, the tight credit market for car loans and a steady stream of insurance replacement rentals are all having a positive effect on rental volume. Operators that are aggressively adapting to these new opportunities are reaping the rewards.

Riding the Economy
Operators report that holiday travel has been down—as much as 30 percent—and truck rentals have been hit hard. But most rental businesses are riding the wave of the local economy.

“The fishing lodges, guide captains and fishing captains are looking at a 20-40 percent drop in clientele this summer,” says Ryan Fahey of North Star Rent A Car in Sitka, Alaska. “So we adjusted our fleet about 20 percent.”

Fahey says he’s fortunate to have a captive audience and only one competitor, a major RAC, in town. The diversity of the national corporate store and value-priced independent is a comfortable mix, he says.

“Our cars are a lot busier than our trucks are,” says Herman Selmon of Justin Rentals in Trenton, N.J.

Tom Pendergast of Rent A Wreck in San Francisco sees the same shift. “Our commercial business is down quite a bit,” he says. “Businesses are not doing much around here now. But the car rental, surprisingly, is fairly strong.”

Pendergast says he gained some business when a competitor ceased renting 12-passenger vans to a local caterer. Pendergast put them in minivans; he may even pick up new minivans on the cheap.

Pendergast has had success with workers coming to San Francisco on temporary contracts, such as traveling nurses, which has resulted in month-long rentals.

“I’ve stayed pretty steady and I’ve even grown,” says Liesel Carter of Affordable Auto Rental in Portland, Ore. “A large part of this economy is based on agriculture, which is probably the least affected.”

Carter’s location is benefitting from a newly built plant with 2,000 construction workers who need temporary housing and transportation for themselves and their families.


“Business is down by about 10-15 percent,” says Dan Darvish of Black and White Rent A Car in Beverly Hills, Calif., which specializes in highline rentals. “Hotel occupancy has been terrible out here. It’s definitely made a difference for everybody.”

However, Darvish says the company does not rely on hotel business, nor does it do outside marketing. “We get a lot of local business, which has been steady. Amazingly enough, luxury rentals have maintained much better than the normal everyday cars,” says Darvish.

Darvish credits some of the rental activity to the Grammys, People’s Choice Awards and the Oscars, all local to Los Angeles.

Long-Term Rentals
The troubled economy has changed reasons for renting, and smart operators are capitalizing. Many consumers with bad credit, or not enough money for a down payment on a car, are renting temporarily instead of buying.

“Because people can’t get financed, many of our customers are into long-term rentals,” says Kerry Steele of Rent A Jalopy in Detroit. Steele’s Monday returns have dwindled from 15-20 down to two. “I have people come in to make a payment and keep it another week or two weeks.”

“People can’t afford to sink money into a down payment on a car,” says Carter. “I’m actually surprised that things are up a little right now. I’m almost completely rented out.”

Darvish has been buying vehicles such as Aston Martins and highline Mercedes for specific clients and writing six-month or one-year leases on them. The long-term rental gives customers more flexibility than a three-year lease, without having their credit run. “A lot of people right now want to maintain a level of lifestyle but not show it on the books,” he speculates.

Rent to Own
Another alternative for people with credit trouble is rent to own, says Joe Zawatski of North Coast Auto Sales in Cleveland. Zawatski, who started as a used-car dealership two and a half years ago and then became a U-Save franchisee, now does rent to own and rarely has to sell a car in the depressed used car market.

“I take my own rental cars and after two years make them rent-to-own cars,” says Zawatski.


Zawatski puts 17 customers in rent-to-own cars a month, on average, using a business plan from Northland Auto Enterprises. His current receivables are $1.5 million and his delinquencies are miniscule, he says. “Two months ago I had my best month ever,” he says. “Last month I was up 50 percent over my best month. This month’s projections will exceed last month.”

Capitalizing on Replacement Rentals
Some operators specializing in insurance replacement business find that customers are putting off minor body repair.

“A lot of people are just not getting their cars worked on, especially if it’s a small ding and they have a high deductible,” says Ralph Barrett of Four Star Rent A Car in Roanoke, Va. “They’re using their money for other things like healthcare and food and gas.”

Other operators, however, are “enjoying” another hard winter.

“The biggest thing that affects our business in the winter time is how many nasty days we have,” says David Wilcox of EZ Rental in Caribou, Maine, an area known for its weather extremes.

“Winter has been tough on us this year,” says Steele. “I’ve had people tearing up transmissions left and right. Everything I can keep running is rented out and I’ve got a waiting list.”

“I’m seeing an increase in business actually,” says Mike Dabish of Rent A Ride USA in suburban Detroit.

Dabish does 90 percent replacement rentals, with 75 percent tied into insurance claims. He’s aggressively looking for new business. “I go to body shops and I work out deals with them and match their special rate,” Dabish says.

Dabish stocks his fleet with late-model used units purchased at auction, which allows him to offer the customer a higher-grade car. “I’m buying full-size cars at the price [the competition] are buying their small size cars. Mine might be used, but someone would rather drive a Taurus instead of an Aveo.”

In business for only two years, Dabish has a 110-car fleet and is looking to open up a location that can handle 500 vehicles. At present he’s running at 90 percent utilization.

Dabish believes the way adjustors handle insurance claims is impacting business positively. A higher percentage of cars are being declared total losses, which puts the customer in the market for a new vehicle. Often the customer will use up the allotted insurance replacement days but still be searching for a new car. During the search, they continue to rent from Dabish.

Business is so good right now that he only rents to people with full coverage insurance or a major credit card. And he has no reservation system—vehicles are available on a first-come, first-served basis.


Financing Holds Steady
Financing is less of an issue right now for independent operators than those with bigger fleets. The banks seem to be comfortable with the small operators’ relatively steady local business, and a limited residual exposure on lower-priced cars.

“Our rates have been pretty steady with Wells Fargo,” says Fahey.

“I’m working with a few banks right now. I’m getting financing. It’s very difficult, but I’ve got a good business plan,” says Dabish, who needs financing not only for fleet but for his new location.

Many operators are seeking financing alternatives.

“We use Manheim for our cars, and that seems to work out fine,” says Pendergast. “For our truck rental, we have a line with a bank here that just got bought by another company. I don’t know how they’re going to look at us, so I’m actively looking for other small banks to see if they want to pick up the slack.”

Darvish, in the highline rental market, is not having an issue with financing now. “As a matter of fact, it’s the exact opposite,” he says. “We have a lending source that has been very loyal to us and we’ve been loyal to them. They’ve maintained our credit amount and it’s been fantastic. When they see that we’re willing to spend $200,000 on a car, they definitely have not shied away from financing them.”

Relaxing Rental Policies
In light of renter’s economic situations, operators seem willing to relax some rental policies in the name of customer service.

“We’re probably a little more lenient with cash rentals now,” says Christi Morgan of Southgate Rental in Maysville, Ky. “Of course it’s not recommended that we do that, but we have to accommodate for some of the [economic] slowdown.”

However, she says the company has increased charges for cleaning a smoker’s vehicle and has increased the refueling charge.

Morgan says the operation is now open seven days a week, and as a result has seen an increase in overdue rental charges.

Darvish says he is avoiding cash deposits but is becoming more lenient on the amount he’s running for credit card authorizations. He says he’s being more flexible on refueling in terms of tank level and refueling fee.


Hold or Sell?
The used car market continues to be a challenge, especially if you’re selling.

“Normally, at this time of year, we sell off some cars before we buy new, but the prices of used cars were so down that we decided to keep them and run them another year,” says Pendergast.

Pendergast sells off his lot and through Craigslist. In the first quarter of 2008 he sold 15 to 20 cars. Not so this year.

One reason might be his recent move to a newer fleet. “The people who live around here like the $2,000 cars. Now our [de-fleeted vehicles] are all $4,000-$6,000 cars and people are just not buying them.”


Holding onto those vehicles was the right decision. “Surprisingly enough, now we need them because we’re getting 75-80 percent utilization this time of year,” he says.

Like Pendergast, others are suffering the stagnant used car market but enjoying strong rental volume. “I’m not selling cars as I’d like,” says Carter. “I have four for sale that are parked in my sales corner in maximum view. There is not much action that way, but the rentals I’m still getting.”

There is more at stake at resale time in the luxury rental market.

Darvish says he is keeping his luxury cars longer while trying to stay on top of the maintenance and appearance. “At least visually they look great, even though they might have 20,000 miles on them,” he says.

However, some turnover of fleet is necessary, if not easy.

“There comes a time when you just have to bite the bullet, and, because of [low] residual values, just eat it on that car,” Darvish says. “You’ve got to get rid of it and you’ve got to get nice cars because you have to maintain that level of customer service.”

“When you have to go out and buy an $80,000 S-class because you just need them, it’s a difficult decision to make,” says Darvish. “But, knock on wood, they’re being rented.”

Darvish, who recently purchased a new Nissan GT-R and Drophead Phantom Rolls Royce, is considering buying used. “We’ve looked at buying some more used vehicles instead of going completely brand new because of the fact that residual values are so topsy turvy right now,” he says.

Signs of Life
However, there are signs of life in the wholesale market.

We’re seeing more movement in the sale of used cars,” says John Winfree of Thompson Rent A Car, a Toyota Rent A Car (TRAC) operation affiliated with Toyota service centers in suburban Philadelphia. “My cars go to the Toyota Used Car Lot and they seem to be doing better this year than we were at the tail end of last year.”

Recent auction data backs up this positive trend in wholesale volume and resale values. And with the constriction in rental fleet sales and right-sized fleets, rates have been up across the board.

These are very good signs—but is this economic storm about to pass? It is most likely too early to tell. Through it all, these independent operators remain philosophical and optimistic.

“I’m 67 and I have never, ever seen anything like this [economic downturn] in my life,” says Winfree. “And I’m still working because of the downturn.”

“We’ve been around since 1981, and we have a name in this area, so a lot of people know us and like us,” says Barrett.

“You have to have some faith that stuff is going to come back,” says Wilcox. “I’m not making plans to fail.”


Chris Brown is executive editor of Auto Rental News. He can be reached at chris.brown@bobit.com.


Ashley Willis is associate editor of Auto Rental News. She can be reached at ashley.willis@bobit.com.

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